'Iron Man' Director Lobbies Guvernator To Try Yet Again For Hollywood Tax Breaks; If So Marvel To Commit $600M To 4 Films

EXCLUSIVE: Over the weekend, Iron Man director Jon Favreau organized a meeting with Marvel Studios producer Lou D’Esposito, California Film Commission member/producer Stanley Brooks, and actor Tom Arnold with California Governor Arnold Schwarzenegger to talk about the problem of runaway production. During the Saturday lunch at Caffe Roma in Beverly Hills, Schwarzenegger pledged to reach across the aisle and push for tax break legislation starting this week in Sacramento.

Will it happen? Who knows, considering that Schwarzenegger up to now has been more talk than action. He most recently railed against runaway production at a news conference on May 9th — but that was scheduled only after he received heat during another press conference for fire prevention from reporters annoying him with questions about Ugly Bettyleaving Los Angeles for New York to take advantage of an Albany-passed package of fat rebates. (See my previous, Unemployed ‘Ugly Betty’ Crew Blame Schwarzenegger For Show’s NY Move.) Since then, the TV shows Life On Mars, Fringe and Kings have left Los Angeles or Toronto (where the Canadian dollar is suddenly expensive) to move to NYC as well.

Saturday’s meeting was pushed by Favreau who wants to keep Iron Man 2‘s $140 million production in Los Angeles. The director’s motivation is personal — the family man has a clause in his contracts saying his shoots must stick close to home. (During the luncheon, Schwarzenegger boasted that, on Terminator 3, he used millions of dollars of his own money to keep the production in California. People I’ve asked about this say it’s news to them…) Favreau deserves kudos for wanting to leverage his new-found clout for the greater good of the Hollywood community. Marvel, of course, only cares about the bottom line and wants to make the Iron Man sequel anywhere the studio is given the best financial deal. “Marvel got an 8-figure rebate check on The Incredible Hulk which was shot in Canada,” Favreau tells me. “It’s hard to compete with that. But a little bit of a tax incentive in California could go a long way.”

UPDATE: Here’s one reason why this lobbying effort might succeed where others have failed: I’ve learned that Marvel Studios intends to keep $600 million in productions in the Los Angeles area if the state makes it worth their while — Iron Man 2, Thor, Captain America, and Avengers which takes the slate through 2011. “They’re willing to make a commitment to keep all four productions here in town. They’re looking for existing studio space right now,” Favreau told me. But during lunch Schwarzenegger explained that the problem isn’t him: it’s the state legislature looking at a $15+ billion budget shortfall. Democrats want to use that tax money for more humanitarian concerns, and see providing services for the poor as more important than providing tax incentives to rich moguls. While Republicans argue that a rebate package is tantamount to a handout, and all corporations, not just showbiz, should receive the tax breaks. In August, the churlish Los Angeles Times editorial board argued that Hollywood tax incentives would end up subsidizing productions that were never at risk of leaving California in the first place. (What a moronic reason…)

Of course Schwarzenegger as a former actor and producer bears the brunt of the blame. He should have done something about runaway production his first year in office, but he squandered that political capital by calling the Democratic legislature a bunch of girlie men. Now he’s a 5th-year governor with little clout and less money. But when he leaves office and if he tries to return to showbiz, he’ll be seen as a latter-day Nero for fiddling while Hollywood burned.

It may also be too late. Since Hurricane Katrina, Louisiana is making a nice living off of hosting Hollywood productions by offering 25% cash rebates or tax credits for all in-state spending on things like equipment rentals, food, hotel rooms, and, at a lower rate, labor. The result is that in 2007 Louisiana had 53 film and television projects that pumped $400 million into the state’s economy. Its program has been so successful that other states have upped their incentive programs to stay competitive. New York recently boosted the showbiz tax credits on below the line expenses for qualified productions to 30% (up from 10%), and Mayor Michael Bloomberg added an extra 5% if a project is made within New York City limits.

Unlike about 40 other states, California does not offer a tax credit program to keep Hollywood at home. So the number of film production days shot on location in Los Angeles has plummetted nearly 40% since 1997, according to FilmL.A. Inc, a non-profit group that handles film permits. What’s at stake? Well, a major production can pump tens of thousands of dollars a day into local economy what with hotel room stays, catering, services and permits. One figure cited is that 3 weeks of filming of Memoirs Of A Geisha generated more than $4 million for Sacramento and El Dorado counties

Schwarzenegger is in favor of tax credits of more than $100 million to keep film and TV productions in California as part of an overall (and un-fleshed-out) economic stimulus package. But the best chance might be another version of Assembly Bill 1696 introduced by Los Angeles Democrat Karen Bass who’s now Assembly Speaker. It passed the lower house last year but failed in the senate. It’s time for Schwarzenegger to put the money where his mouth is and get this done for Hollywood. And no one’s better suited for some ass-kickin’ than Iron Man if Arnold doesn’t.

27 Comments

WontBeEnough • on Jul 22, 2008 1:08 pm

Tax breaks are not the whole story here. Post-60’s are going to be VERY hard to overcome just through tax breaks (and that’s just for people willing to shoot within the US but just not in the 13 western states). For those companies that also need to escape SAG, tax breaks will NEVER overcome SAG residuals + Post 60’s.

brady westwater • on Jul 22, 2008 1:08 pm

The state legislature has always been the problem – not Arnold. He can only sign a bill they introduce and they pass. He can lobby – and he has – but he does not conrol the situation.

Andrew • on Jul 22, 2008 1:34 pm

Louisiana? Michigan has the best $$$ incentive in the nation for film makers.

Michael • on Jul 22, 2008 1:37 pm

Got to luv when Hollywood liberals go head over heels for Supply Side economics when it’s their industry that will receive the tax cuts. The CA branch of AAA recently announced it would be closing all its call centers in CA because the cost of doing business is too high in CA. How about a tax break for AAA???

blackball gavin • on Jul 22, 2008 1:46 pm

I want to be a part of it, New York New York

Furious D • on Jul 22, 2008 2:07 pm

I must admit that I am iffy on the whole tax break issue, and not only for California. In the region of Canada where I live, I’ve seen dozens of companies come in because of tax breaks and incentives, and then leave the moment they pocket the cash from the government.

And then there’s the inevitable temptation of cronyism that these programs create. Soon new regulations are added to these programs, qualifying some companies, and disqualifying others, usually based on what party they donate to.

And the last thing Hollywood should want is to become dependent on the whims of state & federal governments. It’s what happened to the Canadian film industry, and it’s essentially become a tiny private club in Toronto that feels entitled to free government money to make movies no Canadians see.

I don’t really know how to solve the problem of runaway productions, but I think that it’s really just a symptom of a business model for all involved that’s just not working anymore.

RE: Won't Be Enough? • on Jul 22, 2008 3:08 pm

“For those companies that also need to escape SAG, tax breaks will NEVER overcome SAG residuals” – just how do you escape SAG? AFTRA only?

Michael F. Workman • on Jul 22, 2008 3:47 pm

I’m sorry, Post-60’s is 1%, and SAG residuals are all over the world, remember Global Rule One? So that’s not much of an argument. I think that Arnold could give back a little to the industry that gave him his lifestyle, his wife, and his job. (You need only 3 LA IATSE crew to get the POST-60’s, and I’ll bet most of these out of state shows have LA keys there.)

just a thought • on Jul 22, 2008 5:03 pm

WontBeEnough
When they take someone from LA the post 60’s money kicks in. It’s usually a DP and maybe a gaffer.SAG residuals are what they are.

Me • on Jul 22, 2008 5:34 pm

How can you be in favor of giving tax breaks to the evil Moguls. I would have thought having the state take over the studios would be your preference.

Joe Cool • on Jul 22, 2008 5:40 pm

Those socialist democrats in Sacramento will never cut taxes for ANYBODY!

If they get their way and pass every tax they have in the pipeline, you’re looking at a 25% tax increase…FOR EVERYONE!

Welcome to California.

Tennyson Williams • on Jul 22, 2008 7:18 pm

Any form of taxation sucks, flat-out. I know that most agree with that, but most cannot foresee how bad they are. I wouldn’t want to generalize, but you’ve got Arnold (republican) and considering that almost everyone in Hollywood is liberal (Favreau) who could very well be liberal, making the effort to beat this thing. Favreau even brought in Tom Arnold, a good friend of Schwarzenegger’s to try and work something out. I’ve worked in the film world, and a lot of the business in Hollywood is coming out my way, because its more reasonable. These small studios out here can’t even keep up with work. These types of things only hurt industry, not just THE industry.

coup de Tet! • on Jul 22, 2008 7:38 pm

I have shot Louisiana for California because of the tax breaks. I was unable to bring my crew from california except for a few keys. New Orleans is nice for a few days but after several months of everything fried I felt like I could personally solve the worlds oil crisis. Plus flying home on the shorter weekends to see my family made me think I was on a Fraterday tv show. Why can’t California at least match other states?

WontBeEnough • on Jul 22, 2008 7:58 pm

Wow – that’s a lot of responses, and I am impressed and grateful that they were all cogent and clear instead of the “you don’t know anything about movies” (oh how wrong you would be if you said that) response which gets bantered around these forums. Please allow me to respond in kind.

“Michael F. Workman” – Global Rule One is part of the agreement between the Actor and SAG. It is NOT part of the agreement between SAG and the Studios. Odd dichotomy, huh. In fact, the section between SAG and the Studios is “this applies ONLY to US and Canada!”. Do you remember the big tumult SAG made a few years ago about going after violators of Global Rule One. Remember how they never actually did it? Why? Because it would have been a violation of the agreement between SAG and the Studios to take an action outside of the US and Canada which would have caused the Studios loss. SAG would have been in immediate breach of their agreement. Any SAG signatory company can shoot outside of the US and Canada and be free of SAG per the SAG agreement. Period.

“just a thought” – Nope. You can take one. You just can’t take two. I have worked on productions where one was all that was taken. Whether a film can or should be made Post-60’s free is a decision made up front and *is* a substantial factor.

What people do not really think about is that there has to be *something* wrong with the Post-60’s and SAG residuals to make those two things so strong that it is cheaper to fly (first class) a decent amount of cast and crew to a foreign location and put them up in a (first class) hotel and give them per-diems. At the very least this includes the American director, any number of American producer’s, the American actors (and their entourages), at least one (if not more) IATSE member, etc. These are real numbers … and it is FAR cheaper to do that, than to shoot Post-60’s and SAG.

Mickey Slevin, ModernMoviegoer • on Jul 22, 2008 7:59 pm

I like your stance on the governor, it’s about time he started stepping it up. Favreau is a great filmmaker and a good man, good for him for getting it done (or at least trying).

Dan Z • on Jul 22, 2008 9:25 pm

Massachusetts passed a 25% tax credit two years ago and ever since we’ve been crawling with movie productions and movie stars.

We’ve had Gone Baby Gone, 21, The Great Debaters, The Game Plan, two Pink Panther movies, The Women, Mall Cop, Ashecliffe, This Side of Truth, The Proposal, The Ghosts of Girlfriends Past, Bride Wars and a few others all shot here. Martin Scorsese was at the Pops Fourth of July Concert on the Charles and him and Leonardo have been seen all over town together, even renting out a local movie auditorium to screen movies. We’ve had Rick Gervais, the Rock, Ben and Jennifer, Diane Keaton, Annette Benning, Carrie Fisher, Candice Bergen, Sandra Bullock, Ryan Reynolds, Mary Steenburgen, Anne Hathaway, Kate Hudson, Kevin James … the list just goes on and on.

Investors are planning to build a $400 million film studio in Plymouth at a former golf course to help with production.

So it’s interesting what a 25% tax credit will do. Before it, we hardly even saw a major shoot here since Spencer for Hire in the 1980s.

California and Toronto’s loss has been our gain. So the Guvernator may want to rethink his strategy since some taxes is better than no taxes!

Original Joe • on Jul 22, 2008 9:44 pm

So nice to see Canada isn’t taking the brunt of the runaway production abuse anymore. The reality is, everyone in the world is getting a piece of the California pie; New York, Louisiana, Michigan, New Hampshire, Bulgaria and ROmania to name a few.

Laxdude • on Jul 22, 2008 9:54 pm

I am far from knowledgeable…but there is no reason for the film industry to be based in LA anymore. They came for the natural light, stayed for the relatively cheap land and power. Then came the economies of scale – rental of specialized equipment not to mention equipment the size of small buildings and the hard assets.

The problem is, it also centralized the power of labour. Today the equipment is smaller, cheaper, and you have next day delivery. Why not film in Pittsburgh? How is a warehouse sound stage in Vancouver *that* different than a warehouse sound stage in Burbank (other than one being much cheaper)?

Just like the US auto industry has spread to other non-traditional States, not to mention North, South, and Down-Under so will the entertainment industry. Then in 50 years it will all centralize again.

Would California really benefit from tax breaks? Why go to all that effort to just take a slightly smaller cut of a slightly larger pie?

Ted • on Jul 23, 2008 7:55 am

Uh, budget deficit? California has been teetering on the edge of bankruptcy for years, and you all wonder why the governor can’t get tax breaks passed?

Rich D • on Jul 23, 2008 10:00 am

A new studio complex is being built outside Philadelphia, with M. Night Shymalan pledging to shoot LAST AIRBENDER there. I’m sure they would welcome other high profile films. Marvel, come east!

Michael • on Jul 23, 2008 11:37 am

But the best chance might be another version of Assembly Bill 1696 introduced by Los Angeles Democrat Karen Bass who’s now Assembly Speaker.

Same Karen Bass who is on board for a $8 billion tax hike which includes the following:

— Bringing in $5.6 billion by permanently raising income tax brackets for the wealthiest individuals. For example, families earning more than $321,000 would pay 7.5 percent more in taxes. Joint filers earning more than $642,000 would see an 18 percent hike.

— Eliminating inflation in this year’s state income tax tables, essentially imposing an additional tax. For example, an individual with a taxable income of $50,000 would pay an additional $34, while someone making $97,000 would pay an extra $180.

— Eliminate the dependent tax credit for joint filers who make more than $150,000 a year. The credit is now $94 for single-filers and $188 for couples.

— Impose a top tax rate of 9.3 percent on corporations, the amount businesses were assessed before 1997. They now pay 8.8 percent.

In addition to new taxes, Democrats also are proposing a statewide emergency fee applied to homeowners’ insurance policies. The idea was proposed first by Schwarzenegger to help pay for statewide firefighting efforts.

Democrats want to double the governor’s plan by levying a $13 annual fee on homeowners who live in low-risk areas and $25 annual fee on those who live in areas prone to natural disasters such as earthquakes, fires and floods.

Michigan has a chart topping 40% tax break for film makers. It went from zero productions to over a dozen planned in a matter of weeks.

Clint Eastwood, one of the smartest men in showbiz, is in Michigan now filming GRAN TORINO.

I do think Jon Favreau is attempting to make the right moves for both the film industry and California.

Andrew again • on Jul 23, 2008 2:52 pm

BTW,

I’m just asking:

In his meeting with Marvel Studios producer Lou D’Esposito, did Arnold Schwarzenegger audition for THOR?

Joe Lanher • on Jul 29, 2008 12:27 pm

Arnold Schwartzenegger is personally responsible for the destruction of the film industry in California. He promised to bring the industry back to California (after he made 3 movies in Canada) and after he got Gray Davis fired. Gray Davis at least had the Film California First program which Arnold eliminated. Arnold is a liar. Making movies in California has NEVER been more difficult than it is now. The state of California consistently gouges film companies with astronomical prices for shooting in state buildings (in Canada and 49 other states its FREE!). You have to be a total bonehead producer to shoot a frame of film in this state. Bring Gray back!

vladamus • on Sep 2, 2008 10:26 am

Marvel Entertainment MVL 2011 Movie agenda to film in California is too expensive to further improve the bottom line for California’s budget; but, a rebate decision is prudent for the governor to act decisively.